Japanese Firms See Stable Inflation Taking Root in BOJ Boost

Japanese companies forecast sustained price gains, providing support for the Bank of Japan’s campaign to generate stable inflation.

Firms forecast inflation of 1.5 percent in a year, unchanged from three months ago, the central bank reported today. They see prices rising 1.6 percent from a year earlier in three years, and gaining 1.7 percent in five years.

Governor Haruhiko Kuroda has cited rising inflation expectations, along with a closing of the output gap, as key drivers to achieve the bank’s 2 percent price target. The data may reduce pressure on the BOJ to add stimulus as companies increase investment, supporting a recovery in the world’s third-biggest economy.

“The outlook is for inflation rising as a trend,” according to Koya Miyamae, senior Japan economist at SMBC Nikko Securities Inc. in Tokyo. “The BOJ seems to focus more on the trend in prices rather than how much prices will rise by 2015, so these data will be used as a reason to refrain from additional easing.”

The benchmark Topix index of shares was on track for a third day of gains, rising 0.6 percent at 10:15 a.m. in Tokyo. The yen slipped 0.1 percent to 101.60 against the dollar.

Prime Minister Shinzo Abe told Bloomberg News last week that Japan is no longer in deflation and that the economy has weathered the effects of April’s 3 percentage point sales-tax increase. Base wages excluding overtime and bonuses rose 0.2 percent in May from a year earlier, the first increase in 26 months, according to data released yesterday. Total pay rose 0.8 percent.

Easing Expectations

Overall consumer prices rose 3.7 percent in May, the fastest since 1991 and almost five times faster than income growth, squeezing households’ spending power. Kuroda said last month he is “fairly bullish” on the outlook for prices compared to market participants and economists.

Consumer prices excluding fresh food will rise 1.1 percent in the year starting in April 2015, excluding the effect of the sales-tax rise, according to economist forecasts in a Japan Center for Economic Research survey released on June 6. The median forecast by BOJ board members for the same period was 1.9 percent, according to an April report.

Increased Investment

Sentiment among large Japanese manufacturers in yesterday’s Tankan report fell to 12 from 17 as households cut spending after the tax rise. Large companies across all industries plan to lift capital spending 7.4 percent in the fiscal year through March, the report showed.

Fifty-eight percent of economists surveyed last month see the BOJ easing more this year, dropping from 75 percent in May, according to Bloomberg News polls.

The yen has gained about 3.7 percent against the dollar this year after an 18 percent plunge in 2013, reducing upward pressure on prices.

The BOJ surveyed 10,427 companies between May 28 and June 30 for the quarterly Tankan survey. It was the second time the central bank included questions on companies’ price forecasts.

(An earlier version of this story was corrected to show that inflation is at highest since 1991.)

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